No retirement savings and out of time? Here's how to change that

According to figures published last year, 15m Britons do not have any pension savings and, as a result, will depend entirely on the state pension when they reach retirement age.

If you fall into this bracket and want to improve your quality of life in retirement, but don't have much time to prepare, here are some tips to help improve your finances.

Laying the foundations

The first step to building a pension pot is to save. This might seem like an obvious piece of advice, but if you've nearly reached retirement age with no savings put aside, the first thing you need to do is change your spending habits. 

If you're planning to retire at 65 and have 10 years left until this goal, realistically you will need to save around £100 a week to build a pot of about £70,000 at retirement assuming a conservative interest rate of 5%.

The longer you can save the better. In the above example, £70,000 isn't really enough to retire on. If you are able to delay your retirement until 70 and continue to contribute £100 a week, your pot will have grown to around £118,000 at retirement age, enough to double your state pension for 15 years roughly.

As well as saving for longer, the more you can contribute the better. £150 a week for 15 years would give you a pension pot of £180,000 assuming a conservative return of 5% per annum. 

Of course, if you want to take more risk, returns could be even higher. Using the same figures, an average annual return of 7.5% would lead to a total pot of £219,000 at the time of retirement.

These numbers exclude any state contributions. Contributions to a pension plan are entitled to basic tax relief of 20%. So, for every £100 you contribute, the government will add £25. This means the contribution of £150 a week could be worth up to £9,750 a year. At an interest rate of 7.5% per annum, this yearly contribution would be worth £274,000 at the time of retirement.

Put simply, it is easy to build up a small nest egg for retirement with only a few years left. You will have to work a bit longer to be able to afford the extra contributions, but this is a fair trade-off. Working longer will not only allow you to contribute more to your pension, but it will also mean that you don't need to dip into the pot for quite as long.

Don't delay

Time is the investors' best friend and leaving retirement saving to the last minute is not advised. 

The sooner you start saving for retirement, the better. For example, the figures above are based on a weekly pension contribution of £150. However, if you start saving for retirement at 25, with the goal of retiring at 70, you would only need to put away £15 a week, according to my figures, to achieve the same results -- that's excluding any government top-ups. 

If you put away £9,750 per annum over 45 years, you'd be able to retire on an incredibly comfortable £3.5m. These numbers are difficult to argue with.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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